Friday, 4 September 2009

The Pendulum Swings

I would like to write a blog about something other than News International or bankers but the opportunities for comment just keep coming thick and fast.

Yesterday’s pre-emptive strike letter, in advance of the G20 summit, from Europe’s Big Three (Brown, Sarkozy and Merkel) which threatens curbs on banker pay and bonuses will have sent a chill through the City of London. Lord Adair Turner, Chairman of the Financial Services Authority and a former banker made similar noises last week but was roundly derided as being out of touch and barking mad, but it now appears that our political leaders are thinking along much the same lines.

Turner suggested that much of our investment bank activities, such as credit derivatives trading, was “socially useless” and “trading for trading’s sake” in order to gain commission, before proposing a version of the Tobin tax to try and curb excess profits and, in turn, bonuses. The City was quick to respond with its usual defences. “If you do this all the equity capital markets activity, derivatives trading and arbitrage will flee to Frankfurt” followed by the inevitable “we make an enormous contribution to the UK economy.”

They clearly had not read Turner’s remarks properly because what he actually proposed was international not solely UK regulation and that is exactly what the Big Three are proposing to the rest of the G20. How will the banker’s respond? Well, if they go ahead with another round of inflated bonuses in a few month’s time you suspect that they will be just making it worse for themselves. On Channel 4 News last night Christine Lagarde (right)the French Finance Minister, was asked by Jon Snow if she thought the bankers would still take the money. “They better hadn’t” was her reply. It’s been a long time since our bankers were talked to like that.

The pendulum has now decisively swung back towards regulation and away from the laissez faire Anglo Saxon approach pioneered by Thatcher, Reagan, Blair and Clinton. The key issue now is whether the Obama Administration will get on board. There will certainly be intense pressure from the likes of Goldman Sachs to repudiate what will be billed as ‘European’ and ‘French inspired’ regulations. The next few weeks should be fascinating.


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